GMA Telecom to disrupt duopoly?

Some months ago before it was publicly announced, Ramon Ang told me he intended to buy a minority position in GMA 7. It was said in passing over lunch while we were talking about other things.

I couldn’t dismiss it as just another item in RSA’s shopping spree. I had to ask him the most obvious question. Why?

It made sense for MVP to want GMA 7 but RSA himself said a long time ago that owning media is just a headache. What made him change his mind?

His answer was quick: content. He said he was buying GMA 7 because content is now the name of the game. What he said is true and I expressed the suspicion he was listening to too many speeches of MVP and Gabby Lopez. Both have been saying “content is king” for years now.

Not so. RSA said he finds time to read the latest business magazines and journals. He said he gets a lot of ideas from his readings, including how to provide passengers of Philippine Airlines a state of the art entertainment system without costing them or the airline an arm and a leg.

Still, there didn’t seem to be any obvious synergy for GMA 7 with the conglomerate he has assembled so far for San Miguel. I knew he owned some personal interest in Solar News but GMA 7 requires a lot more serious money.

So I asked him where he plans to use GMA’s content and he said he would need content for the telco company he is putting together. But, I protested, his current telco offering, Wi-Tribe is a joke. No, he said, it isn’t Wi-Tribe but something that will be a credible competitor to the duopoly.

When I had lunch with NTC Chairman Liel Cordova some weeks after, I related this conversation with RSA. Yes, Liel said, RSA is indeed putting together another telco but he was unaware of the details of RSA’s plans.

Last Friday afternoon, RSA opened up a bit more on what is percolating in his mind. Over coffee with three other columnists from the major dailies, RSA said he intends to disrupt the duopoly of Smart and Globe. To do that, he needs GMA’s content.

Did he say disrupt? We were of course more than a little skeptical of his ability to disrupt the two telcos now in a comfortable duopoly. Indeed, how can he credibly claim ability to catch up with the millions of subscribers both telcos already have?

RSA said that challenge doesn’t faze him. He recalled his teenage years when he and some friends raced their motorcycles against well-heeled competitors including foreigners. All they had were their self-modified bikes against the top of the line racer bikes of their Japanese and other opponents.

But, he explained, they had nothing to lose by competing and everything to gain if they brought down their opponents who had much better bikes. They had self confidence, determination and the guts to take calculated risks. That’s also what competing in business is all about, he suggested.

That still didn’t erase the reality that Smart and Globe had years of head start, millions of subscribers, a functioning national backbone of cell sites and the deep pockets of their principal shareholders. RSA doesn’t even have a formal telco yet and he was telling us he would disrupt the industry. How?

Oh, he said, the local subscribers are not loyal. Most are on pre paid and are driven by rates. The duopoly is making so much in profits, he explained, so that he suspects there are a lot of fat or excess profits he can target. He will bring the rates down the way he is disrupting the airline industry now.

And since he will also have the latest technology that he will acquire at costs much lower than when the duopoly acquired theirs, he will have an edge there too. And then there is service… he also intends to up the game there, knowing how dissatisfied current telco subscribers are with the service they are getting.

If he can pull that off, he may yet save the major accomplishment of FVR: opening up the telco industry to competition. From seven or so participants in the telco industry after the field was leveled by FVR with the help of the legal strategy of now Supreme Court Justice Tony Carpio, we only have two left. We are almost back to square one.

RSA has interesting dreams but can he deliver? I guess only time will tell. His first telecom entry was a dud. Will this be any different?

CALAX

Of course we had to talk about CALAX. RSA didn’t want to talk much about it because Malacanang is still looking into the issue. He said he wants to give the Palace enough time to understand what really happened and what to do next.

A friend of mine who is in the construction sector and is familiar with bidding rules wrote me to express concern over the need to protect the integrity of the process. He feels San Miguel made an error and no matter how minor, must suffer the consequences.

“It was negligence by the bank and the bidder of the highest order… Optimal (SMC) has in its stable Mark Dumol and Manny Bonoan, both former DPWH officials who know the bid security limitations and restrictions. They had a retinue of lawyers knowledgeable about the bid security requirements… They were negligent in checking the contents of the bid security for submission… Their own people present at the bid opening were also surprised and could not offer a plausible reason…”

Indeed, that was also what I thought until I saw the bank guarantee paper at the core of the controversy. It was clear in the first page of the guarantee letter that the right amount and the right number of days were indicated, spelled out, actually. It was in the succeeding page where the typo error in the number was.

Anyone who has made a mistake in writing a check will appreciate how we sometimes write a different number from the spelled out amount. The bank normally allows us to just initial a correction. This is something like that.

Besides, RSA said, DPWH asked them to clarify the error, which they and their bank did. If they just disqualified them outright, RSA said, there is nothing San Miguel can do.

But by asking them to clarify, DPWH committed itself to accepting a reasonable explanation. I now think it is a minor error that has been adequately explained. For sure, it cannot justify government losing P8.5 billion.

We asked RSA if his higher bid means more expensive toll rates for motorists. No, he said, it doesn’t because the toll rate formula is set in the Terms Of Reference.

They all work with a financial model based on the TOR, he explained. The bid is based on the assumed traffic count.

Perhaps, he said, they assumed a higher traffic count than their competitors. But the motoring public will not be penalized by a higher toll rate if the actual traffic count turned out to be lower than assumed. The market risk is entirely San Miguel’s.

RSA said he is all for a strict implementation of bidding rules but this error is minor and adequately explained compared to the lenient treatment by DPWH of Ayala in the Daang Hari project.

As I pointed out in an earlier column, there were changes in design after the project was awarded to Ayala. Because of this accommodation by DPWH, taxpayers will have to pay P500 million more in right of way costs.

Enough changes were made after the award of Daang Hari that should have made a re-bidding necessary. But that didn’t happen. DPWH’s behavior in Daang Hari makes them less credible when they insist on a strict adherence to the letter of the bidding rules in the CALAX bidding.

Oh well… Malacañang will really have to study this case very well, both the legal and public perception angles. Lawyers may be able to muster enough arguments to sustain DPWH based on a technicality but the public perception is something else they must worry about.

Government may be able to get San Miguel to accept its disqualification in the CALAX bid but how do you explain and convince the man in the street it was alright to give up P8.5 billion because of a typo?